Indonesian Rupiah Little Changed as Consumer Prices Increase

By Suryani Omar and Khalid Qayum -
Jan 3, 2011

Indonesia’s rupiah was little changed
after trading near a one-month high, as a government report
showed inflation accelerated to the fastest pace in 20 months,
spurring speculation the central bank will raise borrowing costs
this year.

Consumer prices rose 6.96 percent in December from a year
earlier, from a 6.33 percent gain in November, the central
bureau of Statistics said in Jakarta today. That was more than
the 6.71 percent median forecast in a Bloomberg survey of 14
economists.

Indonesia’s core inflation, which excludes food and energy
prices, will quicken to 5 percent by the second half of the year,
said Enrico Tanuwidjaja, an economist at OSK-DMG Group in Singapore. The measure slowed slightly to 4.28 percent in
December from 4.31 percent the previous month.

The rupiah was little changed at 8,983 per dollar as of
4:09 p.m. in Jakarta, compared with 8,978 on Dec. 31, according
to data compiled by Bloomberg. The currency appreciated 4.6
percent last year, adding to a gain of 16.1 percent in 2009.

Bank Indonesia kept its benchmark rate at 6.5 percent all
of last year even as Asian nations from Malaysia to India
boosted borrowing costs, delaying an increase that could attract
more funds at a time when emerging markets are luring investors
away from developed economies. Still, the country may raise
rates by half a percentage point this quarter, according to
economists at Morgan Stanley.

The central bank on Dec. 29 tightened rules on banks’
foreign-exchange holdings and overseas borrowing, seeking to
reduce pressure on inflation and the rupiah from capital inflows.
Banks must set aside 5 percent of their total foreign-exchange
holdings as reserves as of March 2011, from 1 percent currently,
and limit short-term overseas borrowing to 30 percent of their
capital from next month.

The yield on benchmark 11 percent note due in November 2020
fell 11 basis points to 7.5 percent, according to closing prices
provided by the Inter-Dealer Market Association. The rate
reached 7.02 percent on Oct. 14, the lowest level since the debt
was sold in May 2005.